How federal Direct Parent PLUS Loans work

Fund your child's education with fixed rates and flexible repayments.

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If your child’s struggling to qualify for enough federal Direct Subsidized and Unsubsidized Loans, a Direct Parent PLUS Loan might be the next best choice. Rather than signing on to a private loan with potentially higher rates and fewer repayment options, a Parent PLUS Loan offers some of the benefits — though not all — of federal loans.

How do Parent PLUS Loans work?

Parent PLUS Loans are federal student loans in the parent’s name, rather than the student’s. These loans are available to parents of dependent undergraduate students and could be a good option if applicants can’t qualify for enough funding through the less-expensive Direct Subsidized and Unsubsidized Loan programs.

All borrowers get the same rates and fees, which Congress sets each year. And the credit requirements are generally less strict than private student loan providers, making it a potentially better deal than cosigning a private loan with your child.

How much can I borrow?

You can borrow up to 100% of your child’s cost of attendance (COA) — after all other loans and financial aid have been subtracted.

Your child’s financial aid award should include information about the COA and financial aid. If your child has yet to apply to school, you can often get an idea of the cost by visiting the school’s financial aid office website.

How much does it cost?

Fixed interest rate: 7.08%

Origination fee: 4.248%

The two main costs to consider are interest and fees. All parents get the same fixed rate, which changes on July 1 each year. The Department of Education (DoE) also deducts an origination fee from the loan before the school receives the funds.

Am I eligible for a Parent PLUS Loan?

To qualify for a Parent PLUS Loan, you need to meet the following criteria:

The DoE and IRS have two different definitions of what qualifies as a dependent child.

According to the DoE, your child is not a dependent if they meet one of the following criteria:

Over 23 years old — as of January 1 of this year

Married

Active-duty member of the US Armed Forces

Veteran

Parent or will become a parent of a child that depends on them for more than half of their financial support in the coming academic year

Other tax dependents live with them and receive more than half of their financial support from them — aside from a spouse

Former emancipated minor

Someone other than a parent or stepparent has legal guardianship over them

Former homeless youth or at risk of becoming a homeless youth

Adverse credit history is a negative mark on your credit report — not necessarily a low credit score. These include:

Charge-offs

Collection accounts

Delinquencies of more than 90 days

Defaults — even if the claim is paid

Wage garnishments

Tax liens

Repossessions

Voluntary surrenders

Foreclosures

Bankruptcy discharges

Can I get a Parent PLUS Loan with bad credit?

You can. Even if you have adverse marks on your credit report, you may still be able to qualify if you:

Add an endorser. An endorser is like a cosigner — someone with good credit who promises to repay the loan if you can’t.

Provide proof the negative mark is incorrect. Have an error on your credit report? You can still qualify if you send documentation proving that it’s a mistake.

Demonstrate you were going through extenuating circumstances. If you went through a divorce or faced an unexpected financial disaster, you could be approved if you provide a statement explaining the situation along with documents to back it up.

What are my repayment options with a Parent PLUS Loan?

Parent PLUS Loans are only eligible for a limited number of repayment plans offered by the Department of Education. They’re also the only federal loan where repayments begin as soon as the funds are disbursed.

Repayment program

Terms

How it works

Eligible for federal forgiveness?

Standard Repayment Plan

10 years

Make the same fixed repayment each month.

No

Graduated Repayment Plan

10 years

Make repayments that increase over time — usually every two years.

No

Extended Repayment Plan

25 years

Make either fixed repayments or repayments that increase over time — usually every two years.

No

Parents might be eligible for the Income-Contingent Repayment (ICR) Plan if they consolidate their debt with a federal Direct Consolidation Loan. This program requires you to make monthly payments of 20% of your income or what you’d pay on a 12-year plan with fixed repayments — whichever is less. The government forgives any remaining balance after 25 years of ICR repayments.

Does the Parent PLUS Loan program offer deferment or forbearance?

Yes, Parent PLUS Loans are eligible for all deferment and forbearance options the federal government offers.

Parents who want to hold off on repayments can apply for Parent PLUS Borrower Deferment, which postpones payments until six months after the student leaves school or drops below half time. Otherwise, there are several other ways to put your repayments on hold during temporary financial setbacks like unemployment or rehabilitation.

Is interest capitalized during deferment?

It is. Interest starts adding up as soon as the school receives the funds. If you apply for Parent PLUS deferment — or any other program — all unpaid interest is capitalized and added to your loan balance. This means you’re effectively paying interest on interest. You can avoid this by making repayments right away or requesting to make interest-only repayments through your servicer, if it’s an option.

Can I qualify for forgiveness with a Parent PLUS Loan?

If you’re interested in forgiveness as a parent borrower, you might want to consider consolidating your federal debts with a Direct Consolidation Loan. This allows you to sign up for the ICR Plan, which makes you eligible for Public Service Loan Forgiveness or ICR forgiveness after 25 years of repayments.

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Bottom line

A Parent PLUS Loan might be a good alternative to private student loans if your child is unable to qualify for enough unsubsidized federal funding. However, it’s one of the most expensive federal loan options. You might be able to find a better deal with private lenders if you have strong enough credit and a high income.

Frequently asked questions

Contact the financial aid office at your child’s school. Some schools have different procedures: You’ll likely be required to complete an online application through the DoE’s Federal Student Aid (FSA) website. However, you could also be asked to submit additional information.

Contact the financial aid office at your child’s school for deadlines. The federal deadline to complete the FAFSA is June 30, 2019. However, your school may have separate deadlines for submitting the Parent PLUS application.

You can reach out to the financial aid office at your child’s school to either add an endorser or appeal your rejection. An endorser needs to fill out an application, which takes about 30 minutes to complete. You might need to provide documents and a statement in order to have your decision appealed.

Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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